When to Drop a Bombshell

Gabriele Gratton, University of New South Wales, Richard Holden, University of New South Wales, and Anton Kolotilin, University of New South WalesPosted onNovember 19, 2017

Sender, who is either good or bad, wishes to look good at an exogenous deadline. Sender privately observes if and when she can release a public flow of information about her private type. Releasing information earlier exposes to greater scrutiny, but signals credibility. In equilibrium bad Sender releases information later than good Sender. We find empirical support for the dynamic predictions of our model using data on the timing of US presidential scandals and US initial public offerings. In the context of elections, our results suggest that October Surprises are driven by the strategic behavior of bad Sender.